While the results were better than the company's report three months ago, profit fell 2 percent from a year earlier, reflecting the bank's difficulties as it works to boost its earnings in a sluggish global economy.

Chief Executive Vikram Pandit said the bank might not seek regulatory approval to return capital to shareholders this year after all. Citigroup received multiple bailouts during the credit crunch and was one of the few banks to have its capital return plans rejected by the Federal Reserve earlier this year.

First-quarter revenue, excluding accounting adjustments, was up 1 percent from a year earlier and 17 percent from the fourth quarter, to $20.2 billion (12.6 billion pounds). Investment banking revenue was hit particularly hard in North America and Europe.

Investors focused on the positives, and Citigroup's shares rose 74 cents, or 2.2 percent, at $34.15 in Monday afternoon trading.

"They continue to progress. They have headwinds that maybe only Bank of America has, but they seem to be managing those headwinds," said Gary Townsend, CEO of Hill-Townsend Capital. "It's a good quarter without being as superlative as JPMorgan's was."

JPMorgan Chase & Co (JPM.N) topped Wall Street profit expectations on Friday, helped by some of the same macro trends - a better economy and more active capital markets.

But the KBW index of bank stocks .BKX is already up more than 20 percent this year, and investors are turning their attention to determining the strength and extent of the recovery, which still lags the optimism of early last year.

Citigroup Chief Financial Officer John Gerspach said demand for loans remains soft in the United States and Europe but continues to be strong in emerging markets.

Loan growth in the first quarter was particularly strong for trade finance, he added in a conference call with reporters.

At the end of the first quarter, the bank had $619 billion of loans outstanding, after accounting for money set aside for bad loans. That was up from $617.13 billion at the end of the fourth quarter and $600.57 billion a year earlier.

LAGGING ON CAPITAL PLAN

Last month, Citigroup was one of only a handful of large financial institutions that failed to win approval from regulators for a dividend increase or share buyback.

Analysts have wondered if Citigroup asked to distribute too much capital or somehow erred in its calculations of the losses it would incur under stress tests conducted by the regulators.

In the weeks leading up to the setback for the capital plan, Pandit convinced analysts that Citigroup had rebuilt its balance sheet to the point that it had so much more capital than needed in an economic downturn that it would to be allowed to raise its quarterly dividend from a nominal penny a share to as much as 10 cents.

On Monday, Pandit said Citigroup was due to submit a new proposal by mid-June for managing its balance sheet to withstand hypothetical financial stresses.

New economic and market scenarios may be applied in the next review, he said, explaining that the bank is still discussing the retest with Federal Reserve officials.

Pandit told analysts on a conference call that the company may opt not to ask regulators for permission to raise the dividend or buy back stock this year.

"We need to understand the process going forward to make a determination what to include in our submission," he said.

The CEO also said the company's capital is increasing quickly enough that it does not have to sell its minority interest in its brokerage joint-venture with Morgan Stanley (MS.N).

The new test will be based on Citigroup's March 31 balance sheet, which is stronger than at the end of December, before the earlier test.

For example, Citigroup's so-called Tier 1 Common Ratio, a measure used under Basel 1 regulations, rose to 12.4 percent from 11.8 percent. And its ratio as measured under pending new Basel 3 regulations is on track to rise above 8 percent at the end of the year from its current 7.2 percent.

Pandit cautioned that the Federal Reserve looks at different capital figures than those used for Basel.

Once the bank submits a new plan for 2012, the Federal Reserve has 75 days to respond, which means the company may not get an answer until well into the third quarter of the year and not long before it has to start preparing to have its 2013 capital plan tested.

Pandit said the bank would announce by its July earnings conference call whether it was seeking to return more capital to shareholders.

In the first quarter, a set of assets the company has been selling off or running down since the financial crisis declined 29 percent from a year earlier to $209 billion, or 11 percent of total Citigroup assets.

NET INCOME FALLS

Citigroup's first-quarter net income fell 2 percent to $2.93 billion, or 95 cents a share, from $2.99 billion, or 99 cents a share, a year earlier.

Excluding the impact of certain accounting adjustments for changes in the value of debts and credits, Citigroup earned $1.11 a share. The average Wall Street forecast was $1.00, according to Thomson Reuters I/B/E/S.

Revenue from the company's ongoing securities trading and investment banking business declined 12 percent from the strong quarter a year earlier but rose 65 percent from the weak 2011 fourth quarter.

Expenses were down 7 percent from the previous quarter and were flat with a year earlier, reflecting seasonal factors and the company's commitment to bring costs down for the year, Gerspach said in the conference call.

Citigroup's 2011 fourth-quarter earnings missed analysts' estimates and executives were grilled over the company's control of its expenses, which rose 4 percent in the fourth quarter from the third quarter. Expense control has become an increasingly important issue for banks because their profits are being squeezed by low interest rates and tighter regulation.

The bank's latest results were boosted by a $1.2 billion release of bad-loan reserves. Delinquency rates for its North American credit card and retail banking customers declined 31 percent from a year earlier. International consumer credit costs fell 3 percent.